Spending per member in commercial plans on medical pharmacy drugs increased by nearly 20% between 2016 and 2017, due in part to the growing number of emerging therapies with high price tags.

Magellan Rx Management, the pharmacy benefit management arm of managed-care company Magellan Health, released its ninth annual trend report diving into spending on drugs administered by providers, and it found that per-member, per-month spending on these therapies increased by 18% from 2016 to 2017, reaching an average of $29.97 monthly, for people enrolled in commercial plans.

Spending on provider-administered drugs in Medicare also went up, the study found. Per-beneficiary, per-month spending increased by 12% in that same window, to an average of $52.19.

The findings put a spotlight on focus areas for PBMs and payers to more effectively monitor use and control costs for these drugs, Kristen Reimers, senior vice president for specialty clinical solutions, told FierceHealthcare.

“In previous years, drug pricing and inflation have really been the drivers of trend. This year, our analysis showed that drug spend was driven overwhelmingly by an increase in unit volume—in other words, more specialty medical benefit drugs are being utilized,” Reimers said.

Drugs administered in hospitals continue to be the most expensive, the report found, typically costing between two and three times more than those administered at a doctor’s office or through home health.

But payers are taking notice—68% now use a site-of-service program to mitigate these expenses, Magellan found.

Spending on emerging oncology treatments—particularly immunotherapy—are also a major driver, according to the study. Treatments in the antihemophilic factor category, for example, increased spending by 62% year over year in commercial plans and 185% in Medicare for patients given these therapies.

Chimeric antigen receptor T-cell therapy, which Medicare may begin to cover in the near future, alone is projected to drive per-member monthly spending up by 581% for patients who are prescribed these treatments. The highest per-member, per-month spending across all service lines was also reported in oncology, Magellan found.

In addition to diving into claims data from 45 commercial insurers—33 of which also administer Medicare Advantage plans—Magellan also surveyed leaders at these payers. Just over half (51%) have instituted step therapy to manage these drug costs, and 64% said the cost of biosimilars, in oncology especially, is playing a significant role in their reimbursement plans.

And more of these drugs are on the horizon—Magellan projects that there will be 43 billion dollar therapies on the market by 2021.

“The big story again this year was the increase in oncology immunotherapy products,” Magellan’s researchers said. “Medical pharmacy continues to be driven by low-volume, high-cost specialty medications.”

Democrats and the Trump administration are beginning to hold talks on lowering drug prices as they look for a rare area of common ground.

Both President Trump and congressional Democrats say that lowering drug prices is a priority, providing a potential area for bipartisan action in a government that is otherwise bitterly divided after a months-long fight over border security.

But the political risks are high for both sides in a politically polarized atmosphere and with the 2020 elections rapidly approaching.

Trump and Speaker Nancy Pelosi (D-Calif.) spoke briefly about working together to lower drug prices during a phone call at the end of January and their staffs have begun preliminary discussions, according to a Democratic aide.

Rep. Peter Welch (D-Vt.), one of the House’s fiercest critics of the pharmaceutical industry, also spoke with acting White House chief of staff Mick Mulvaney during a trip to Camp David last weekend.

And Secretary of Health and Human Services Alex Azar has been talking to dozens of congressional Democrats, including House Ways and Means Committee Chairman Richard Neal (D-Mass.). He also met with Democrats on the Senate Finance Committee on Wednesday.

“We’re hopeful,” Welch told The Hill. “I spent some time at Camp David talking with Mick Mulvaney about it.”

“He brought it up, he was just very affirmative about the president’s desire to make some progress on this,” Welch added.

Despite the flurry of talks, there is still plenty of reason to doubt that a breakthrough on drug prices, or any major bipartisan goal, can be accomplished. Democrats and Trump are still dealing with the fallout from the border wall standoff, and bracing for a contentious legal fight after the president on Friday declared a national emergency at the border.

Trump has also recently cast doubt on working with Democrats, who with control of the House have stepped up their investigations into his campaign and administration. During his State of the Union address, he derided them as “ridiculous partisan investigations,” and warned the probes would hurt the chance for bipartisan achievements.

And with 2020 quickly approaching, a number of Senate Democrats have jumped into the presidential race, complicating hopes for a bipartisan deal. For some Democrats, there is little upside to giving Trump a major legislative victory heading into an election.

And both sides are rife with skeptics that those across the table are ready to push ahead on the issue.

“I think the administration needs to stand up to the drug lobby and they won’t any more than they stand up to the gun lobby or Wall Street,” said Sen. Sherrod Brown (D-Ohio), a possible presidential candidate who attended the meeting with Azar on Wednesday.

Still, Brown called Azar “very smart” and said the administration had proposed “a few good things” on drug prices.

Other key Democrats struck a more hopeful note.

Neal, the Ways and Means chairman, said at a hearing on drug prices on Tuesday that he has had “encouraging conversations” with Azar, specifically on a proposal to make drug companies pay rebates back to the government if their prices for certain drugs in Medicare Part B rise faster than the rate of inflation.

“Secretary Azar and the Trump Administration are committed to working across the aisle and have made it clear that all options that preserve drug safety, protect innovation, and keep patients at the center are on the table,” Health and Human Services spokeswoman Caitlin Oakley said in a statement after Azar’s meeting with Senate Democrats on Wednesday.

House Democratic leaders are planning to move first on a package of “low-hanging fruit” drug pricing bills that are smaller measures that have some bipartisan support, before later moving on to more partisan proposals like allowing Medicare to negotiate drug prices.

It is possible that the smaller, bipartisan measures could make it through the Senate as well, given that Senate Finance Committee Chairman Chuck Grassley (R-Iowa) supports several of the key components, such as preventing drug companies from using gaming tactics to delay competition from cheaper generic drugs.

House Democrats are then expected to move on to a more partisan bill on allowing Medicare to negotiate drug prices. That measure has little, if any, chance of making it through the Senate but will allow Democrats to showcase their priorities.

Democratic leaders have begun working on the Medicare negotiation bill, but have not yet settled on the details. One major question is what enforcement mechanism they will include in the bill to force drug companies to the table if they decline to negotiate.

“We’re working on it; we don’t have a draft yet,” House Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.) said of the Medicare negotiation bill on Wednesday.

The vast number of issues at play in drug pricing and the large number of important players, on Capitol Hill and beyond, make the prospect of any action challenging.

Still, in the upper chamber, one senior lawmaker held out hope that the administration and Democrats could move forward.

Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, said that he secured a commitment from Azar at the meeting Wednesday to work with him on another priority, Wyden’s bill to cap seniors’ out-of-pocket drug costs in Medicare.

“He started in talking about how much he favors an out of pocket limit for seniors and I said ‘Secretary, I’ve had a bill on that for two years,’ and finally I said, ‘Will you send your people over to talk to mine so we can pass that bill quickly?’ ” Wyden recounted.

Wyden said that Azar agreed.

“If the administration will do what they said they were going to do,” Wyden added. “I said, ‘I’ve had this bill for two years, let’s go’ and he said, ‘Ok.’ ”

California Gov. Gavin Newsom says he’s done waiting for the federal government to curtail the rising cost of prescription drugs.

Newsom has his own plan to ease that financial burden — one he hopes other states can join or replicate.

The Democratic governor said he intends to use California’s might as the world’s fifth-largest economy to demand lower prices directly from drug companies for millions of Medicaid enrollees, state government workers and, eventually, Californians in the private sector.

“I recognize deeply the anxiety so many of you feel around the issues related to the cost of prescription drugs,” Newsom said in a Facebook Live video when announcing his initiative. “And I hope California’s efforts here can lead the way to other states to consider the same.”

Newsom said later he’s already “talking to other state governors about how they can participate.”

Whether he can deliver on his ambitious pledge to take on big pharmaceutical companies is far from certain. The plan he introduced his first day in office is based on broad ideas, with few details and start dates that may be years away.

States have taken smaller steps to rein in drug prices and achieved limited savings. But the issue has stymied lawmakers at the federal level, including President Donald Trump, who called for lowering the cost of prescription drugs in his State of the Union address last week.

Lawmakers face an array of challenges that make reform hard, such as secretive drug pricing and the political influence of the pharmaceutical industry, one of the most powerful lobbies in the country, said Rachel Sachs, an associate professor at Washington University in St. Louis who specializes in health law.

“Drug pricing is one of the most complicated areas within a complicated health care system,” Sachs said.

In California, the amount the state government spends on prescription drugs has risen 20 percent per year since 2012, according to Newsom’s executive order.

To stem that rise, he wants the state Department of Health Care Services — which oversees Medi-Cal, the country’s largest Medicaid program, for low-income residents — to negotiate prescription drug prices for all of its roughly 13 million enrollees by 2021.

Currently, the vast majority of Medi-Cal enrollees get their prescription drugs through managed-care plans that contract with the state to provide Medi-Cal coverage — a fragmented system that doesn’t yield the best price for consumers, the Newsom administration argues.

With the state in charge of negotiations, Medi-Cal could save $150 million a year, the administration said, and Medi-Cal enrollees could go to virtually any pharmacy, as opposed to the limited options authorized by their health plans.

Although the concept of bulk purchasing might sound good, health experts say, the state faces barriers.

Federal law requires Medicaid programs to cover most drugs approved by the Food and Drug Administration. That leaves states without one of the biggest bargaining chips available to the private sector: the ability to tell drugmakers they won’t buy their products.

But California can get creative, said Jennifer Kent, the health department’s director. For example, the state can create a preferred drug list that gives drugmakers an incentive to reduce their prices. If a medication is on the list, doctors don’t need to obtain preauthorization from Medi-Cal to prescribe it, making it more accessible and thus more likely to be used by patients, Kent said.

In addition, the sheer size of California’s Medi-Cal program can help drive down prices, Kent said.

“I think of us as the third-largest public purchaser in the nation” behind Medicare and the Department of Veterans Affairs, Kent said. “We cover a very significant number of people.”

But representatives for California health plans and pharmacy benefit managers, the middlemen who negotiate with drugmakers on behalf of health plans and government entities, say their organizations already work to find the best prices for consumers. They haven’t publicly opposed Newsom’s plan but have expressed skepticism.

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, said in a written statement that its companies are set to save the California Medi-Cal program $8.59 billion in projected costs from 2016 to 2025.

Drugmakers have launched a national campaign that blames insurers for failing to pass along more than $150 billion a year in rebates and discounts to consumers.

In addition to negotiating for Medi-Cal enrollees, Newsom wants to get a better deal for state workers. He has directed his administration to study how agencies could band together in a separate drug-purchasing pool to buy prescription drugs as one entity.

Currently, more than 20 state agencies negotiate drug prices separately.

Newsom said he envisions private purchasers — including small businesses, health plans and self-insured Californians — eventually joining these state agencies at the bargaining table in a bid to “marshal public and private parties” for lower drug prices.

A report last year by the National Academy of Sciences found that spending on biopharmaceuticals accounts for nearly 17 percent of America’s annual health care bill, and that many people have difficulty paying for the drugs they need.

Among the report’s recommendations to lower costs: The federal government should consolidate its purchasing power and directly negotiate prices for all federal health care programs, including Medicare and Department of Veterans Affairs coverage. However, legislation to do that within Medicare has stalled repeatedly over the years and remains controversial.

Trump’s proposal last year to link Medicare spending for certain drugs to what other industrialized countries pay has gone nowhere. Last month, the Trump administration proposed a new prescription drug discount plan that would steer the rebates drug companies now give to insurers directly to consumers.

In the absence of federal action, states have sought to curb drug prices on their own. Among those efforts: a Connecticut law requiring drug companies to justify price increases, a California law requiring them to report price hikes, and a New York cap on drug spending in the state’s Medicaid program.

Twenty-eight states and the District of Columbia belong to multistate purchasing pools, mostly for their Medicaid programs. But data about how much money these pools have saved is scarce, said Edwin Park, a research professor at Georgetown University’s Center for Children and Families.

“I think there are real opportunities and real interest in the states about leveraging their buying power,” said Trish Riley, the executive director of the National Academy for State Health Policy. “The states can’t wait for federal action.”

Under the most recent proposal, people between the ages of 50 and 65 could buy a Medicare plan and qualify for subsidies and tax credits under the Affordable Care Act (ACA). The Medicare at 50 Act, led by Sen. Debbie Stabenow, D-Mich., would fund enrollment through premiums and would eventually lower costs for younger people by moving more people into the higher age bracket, its sponsors argue.

However, David Merritt, executive vice president of public affairs and strategic initiatives at America’s Health Insurance Plans (AHIP), called the proposal a “slippery slope to government-run healthcare for every American.”

Merritt told FierceHealthcare that U.S. healthcare is not a one-size-fits-all system and that a vast majority of Americans are satisfied with the coverage they have today, whether it be through Medicare Advantage, Medicaid or private coverage.

“They have choice and control over their coverage, options, and treatment,” Merritt said. “Instead of taking away the coverage that works for them today, let’s focus on protecting and improving what’s working and fixing what’s not. That’s the most effective way to guarantee that every American has affordable coverage and high-quality care.”

The Federation of American Hospitals (FAH) shares similar concerns, saying in a blog post that the bill “would harm more Americans than it would help.” The post said that allowing more people into the Medicare program would weaken the system for those who are already in it.

Instead, the FAH suggests that “Congress should work to sustain and expand affordable private coverage.”

In a recent blog post, the American Hospital Association’s (AHA) president and CEO, Rick Pollack, reiterated his support for strengthening the existing Affordable Care Act and expanding Medicare, but cautioned not to resort to a one-size-fits-all approach.

He argues that this form of government-run coverage poses risks to many U.S. citizens.

“If Congress controls all payments to providers, delivery system reforms to improve care, enhance quality and reduce costs may no longer be a priority as the government would be able to simply ratchet down reimbursement,” Pollack wrote in a blog post earlier this year.

Despite the concern from the industry, plans to expand Medicare are popular with voters. According to a recent poll from the Kaiser Family Foundation, 77% of the public supports offering Medicare to those 50 and older.

When Michelle Fenner signed up to run this year’s Los Angeles Marathon, it got her thinking: Tijuana, Mexico, is only a 2½-hour drive from L.A. Why not take a trip across the border and buy some insulin for her son?

“It’s so easy to just go across the border,” mused Fenner.

This idea had been in the back of Fenner’s mind for a while. Her son was diagnosed with Type 1 diabetes nine years ago, meaning he needs daily injections of insulin to live. The list price of the modern generation of insulin has skyrocketed since his diagnosis. On one trip to the pharmacy last year, Fenner was told that a three-month supply of insulin would cost her $3,700.

That same supply would cost only about $600 in Mexico.

So, when she booked her trip to Los Angeles, Fenner said, “I decided we need to update our passports and go and get more insulin.”

Fenner is not the only one thinking like this. The U.S. government estimates that close to 1 million people in California alone cross to Mexico annually for health care, including to buy prescription drugs. And between 150,000 and 320,000 Americans list health care as a reason for traveling abroad each year. Cost savings is the most commonly cited reason.

‘Right To Shop’ Legislation

In Utah last year, the Public Employee Health Plan took this idea to a new level with its voluntary Pharmacy Tourism Program. For certain PEHP members who use any of 13 costly prescription medications — including the popular arthritis drug Humira — the insurer will foot the bill to fly the patient and a companion to San Diego, then drive them to a hospital in Tijuana, Mexico, to pick up a 90-day supply of medicine.

“The average cost of an eligible drug in the US is over $4,500 per month and is 40-60% less in Mexico,” PEHP clinical services director Travis Tolley said in an announcement of the program in October.

The program was part of a “Right to Shop” bill championed by health care economist and Utah state representative Norm Thurston in 2018. Thurston said there is not yet enough data to know how much in savings the program provides; the first patients traveled to Tijuana in December.

But, Thurston said, he expects that in the next six months, savings will likely be “in the ballpark of $1 million.”

There are some questions about traveling abroad to buy prescription drugs, however. The first: Is it legal?

According to the Food and Drug Administration, “in most circumstances, it is illegal for individuals to import drugs into the United States for personal use.” But the agency’s website does provide guidance about when it could be allowed. And the U.S. Customs and Border Protection’s website has a whole section on traveling with medications in its “Know Before You Go” guide.

While the guidelines may still raise questions, Thurston said, this sort of purchase for personal useis a widely established practice.

“When we talked to people about this, there has never been a single person who has been prosecuted for doing it. And it happens every day at every border crossing all over the country,” Thurston said.

“The general understanding is you can bring up to a 90-day supply of a prescription from overseas, even though it’s a technical violation,” said Nathan Cortez, a law professor at Southern Methodist University.

“My sense is the FDA does not want to worry about individuals going overseas and bringing back small amounts of prescriptions that last a few months,” Cortez said, adding, “That doesn’t mean the FDA couldn’t change its mind at any point and start cracking down.”

A second major concern that comes up in any discussion of medical tourism is about the quality of that imported medicine. According to the FDA, the reason it’s mostly illegal to import drugs is because the agency “cannot ensure the safety and effectiveness” of those drugs. In 2017, the World Health Organization estimated that 10 percent of drugs in developing countries were either substandard or falsified.

To address that problem, the Utah program sends its patients only to a designated, accredited Mexican hospital. Individual patients like Michelle Fenner are left to take their own precautions.

“You get a little nervous. You want to make sure that you have a reputable pharmacy,” Fenner said. To get pharmacy recommendations, she has been consulting with friends and acquaintances who have purchased insulin in Mexico. She’s calling those pharmacies now to make sure they have the type of insulin she wants to buy. When the March 24 marathon gets closer, she’s planning to call ahead with her order.

Fenner, who splits her time between Dallas and Arvada, Colo., said the amount she’s expecting to save on insulin could warrant multiple trips to Mexico every year.

Global Savings

Fenner is just one of the growing number of activists online who are discussing the great lengths they go to — sometimes literally — to afford insulin. Lija Greenseid is another. Her daughter has Type 1 diabetes.

Almost one year to the day after her daughter’s diagnosis, Greenseid and her family were visiting Quebec City, Canada, in July 2014. Her daughter’s blood sugar started spiking and Greenseid feared her insulin might have gone bad, so she went to a pharmacy. With no prescription and fearing that her daughter’s life was on the line, Greenseid was prepared to pay a fortune.

Instead the box of insulin pens that normally costs $700 in the U.S. was only around $65 or so.

“At that point I started tearing up. I could not believe how inexpensive it was and how easy it was,” Greenseid said.

“I said to [the pharmacist], ‘Do you have any idea what it’s like to get insulin in the United States? It’s just so much more expensive.’ And he turned to me and said, ‘Why would we want to make it difficult? You need insulin to live.’”

The more Greenseid traveled with her family, the more they realized how inexpensive insulin was everywhere except in the United States. In Nuremberg, Germany, she could get that $700 box of insulin pens for $73. The same box was $57 in Tel Aviv, Israel, $51 in Greece, $61 in Rome and $40 in Taiwan.

“We get so accustomed in the United States to thinking that health care has to be difficult and so expensive that people don’t even consider the fact that it could be so much easier and less expensive in other places,” Greenseid said. “In fact, that is the case in most countries.”

At the same time, Dr. Scott Gottlieb, the agency’s commissioner, suggested that Congress strengthen the F.D.A.’s authority over an estimated $40 billion industry, which sells as many as 80,000 kinds of powders and pills with little federal scrutiny.

These products range from benign substances like vitamin C or fish oil to more risky mineral, herbal and botanical concoctions that can be fatal.

“People haven’t wanted to touch this framework or address this space in, really, decades, and I think it’s time we do it,” Dr. Gottlieb said in an interview. He is particularly concerned about supplements that purport to cure diseases for which consumers should seek medical attention.

“We know there are effective therapies that can help patients with Alzheimer’s,” he said. “But unproven supplements that claim to treat the disease but offer no benefits can prevent patients from seeking otherwise effective care.”

The companies included TEK Naturals, Pure Nootropics and Sovereign Laboratories. In a letter to TEK Naturals, the F.D.A. and the Federal Trade Commission chastised the company for marketing Mind Ignite as a product “clinically shown to help diseases of the brain such as Alzheimer’s and even dementia.”

In response to a request for comment, TEK Naturals said in an email that it was reviewing the letter and was committed to complying with legal requirements.

Dr. Peter Lurie, president of the Center for Science in the Public Interest, a nonprofit advocacy organization, said the F.D.A.’s warning letters called attention to the lack of regulation.

“Each time they issue a new one, it hopefully acts as a shot across the bow for that segment of the industry,” said Dr. Lurie, a former associate commissioner with the agency.

He also expressed frustration that the F.D.A. had spent years debating policy that would encourage manufacturers to notify the agency of new dietary ingredients but had not yet released it.

Dr. Gottlieb said the F.D.A. would create an online watch list of specific ingredients the agency was concerned about.

The F.D.A.’s oversight is based on a 1994 federal law, which imposed minimal reporting and labeling requirements on the makers of vitamins, minerals and herbs — a fledgling industry at the time. To prevent a company from selling a product, the law requires the F.D.A. to prove that it is unsafe. The agency says it is difficult to track the myriad products, many of which are sold on the internet.

The law also requires businesses to notify the F.D.A. that they are making a dietary supplement, but not to say what’s in it.

“That just makes it impossible for the agency to police the market,” Dr. Lurie said.

The 25-year-old law has drawn increasing criticism as the sector has grown. There are now between 50,000 and 80,000 dietary supplements on the market, according to the F.D.A. The agency also says that three of every four American consumers now take a dietary supplement regularly. For older Americans, the rate is four out of five.

In recent years, the F.D.A. has cracked down on several sectors of the industry, including dietary supplements sold for weight loss, sexual function and energy enhancement. More recently, one of the biggest targets has been kratom, a botanical substance that is marketed as a safe alternative for opioids or to help opioid users’ withdrawal symptoms. The F.D.A. has ordered that kratom imports be seized and told companies not to use it in supplements. The agency has linked several deaths to kratom.

Steve Mister, chief executive of the Council for Responsible Nutrition, which represents the dietary supplement business, said he believed the dietary supplements industry was “remarkably safe.” He also said the current law struck the right balance between ensuring safety and giving consumers access to affordable products.

“These products are not drugs and should not be regulated like drugs,” he said. Mr. Mister also said his group supported the F.D.A.’s enforcement actions, and had been working with Congress to increase the program’s budget.

The paper offers one path for getting about 3 million uninsured Californians health coverage. It is one of several recent estimates from researchers and legislators who have devised various ways to work toward universal coverage in the state. It is not a plan for a single-payer system.

The figure is significantly higher than other analyses, which found that working toward universal coverage by expanding Medi-Cal insurance for the poor would cost less than half of that. That is because the paper builds in the assumption that the uninsured would get on private health insurance plans, whereas other estimates factor in federal funding for getting more people on Medi-Cal, which is jointly paid for by the federal and state governments.

The paper, by Richard Scheffler and Stephen Shortell of Berkeley’s School of Public Health, proposes a mix of new taxes on the health care industry, California employers and airline travelers, paired with contributions from the state’s general fund and premium payments from individuals who are now uninsured.

The ideas, presented Friday to a group of California health policy researchers and advocates, are considered one early stab at financing universal coverage and are not included in legislative proposals.

The largest source of financing, 41 percent, would come from a 3 percent tax on the revenue of hospitals, nursing homes, drug companies, home care providers and insurance companies, which would generate an estimated $7.2 billion a year. The tax would not apply to public hospitals.

The next largest source of funding, 31 percent or $5.2 billion, would come from currently uninsured residents who would pay a monthly premium for a health plan — envisioned as a plan bought through the insurance marketplace Covered California. The premium would be paid by those who earn too much to qualify for Medi-Cal, the insurance program for the poor, and would average out to $123 a month per person. The authors do not specify how many people would pay this premium, or address how to incentivize this population — many of whom are undocumented and hesitant to participate in government programs — to buy into the system.

The paper also proposes a tax on international and business class travelers who fly into and out of California’s five largest airports: Los Angeles International Airport, San Francisco International Airport, San Diego International Airport, Oakland International Airport and San Jose International Airport. The taxes would be $50 per ticket for domestic business class passengers, $60 per ticket for for economy international passengers and $250 per ticket for international business passengers. These five airports see a collective 188 million passengers each year, according to the authors’ analysis of California Department of Transportation air passenger traffic data. The tax would generate $2.3 billion a year.

The remaining funding would come from the state’s general fund in the amount of $1.7 billion, and a tax on employers that would generate $979 million. The employer tax would be modeled after Healthy San Francisco, a program started in 2007 to cover the city’s 14,000 uninsured residents. It would require employers that don’t provide insurance to their workers to pay into a fund by levying a 4 percent surcharge on customers. It would apply to for-profit employers with more than 20 workers and nonprofit employers with more than 50 workers.

Under the plan, the revenue generated through these proposed new taxes would go toward what’s known as integrated care systems to expand their geographic reach and offer more insurance plans on Covered California. The biggest and most well-known integrated system is Kaiser, which provides both the insurance coverage and health care services to its patients, but others have started forming their own integrated care systems in recent years including Sutter Health’s HMO plan, Sharp Health Care in San Diego and HealthCare Partners in Los Angeles. Those integrated care plans would be offered on Covered California.

Scheffler and Shortell say they hope their ideas are a starting point for debate and will inspire action by state legislators.

“We’re hoping for some interest from Sacramento,” Scheffler said.

Some policy experts who reviewed the paper raised questions about some of the proposed taxes and the cost estimate. Ken Jacobs, chair of the UC Berkeley Labor Center, said $17 billion is much too high for achieving universal coverage because it doesn’t take into account the federal dollars that would be available if the state were to expand Medi-Cal to more uninsured people.

A state-level employer mandate could face legal challenges, as Healthy San Francisco did, because of federal preemption issues under the Employee Retirement Income Security Act, or ERISA, Jacobs said. Similarly, the airline tax might run afoul of federal laws regulating interstate commerce and airlines. And the tax on hospitals would need a two-thirds vote in the Legislature and buy-in from health care providers.

“I look at the (financing) as throwing some ideas on the table to start a discussion,” Jacobs said.

Other proposed measures and analyses put different cost estimates for getting California closer to universal coverage. A report released this month by Covered California found that providing more financial assistance to consumers to buy plans would cost between $2.1 billion and $2.7 billion a year.

One bill, AB-4, proposes expanding Medi-Cal to all undocumented adults — a move the Legislative Analyst’s Office has estimated would cost $3 billion annually. Another bill, AB-174, aims to provide financial assistance to those making between $48,000 and $72,000 to buy insurance. It would cost $40 million to $75 million a year, according to estimates included in a previous bill.

Gov. Gavin Newsom’s proposed budget included expanding Medi-Cal coverage to undocumented young adults between ages 19 and 25, and providing state-funded financial assistance to help Californians buy insurance — both of which would be steps toward universal coverage in the state. It is unclear how much the initiatives would cost.

The Trump administration’s proposed new rule taking aim at healthcare costs by eliminating hidden drug rebates is a positive step that would increase transparency and eliminate conflicts of interest — and better serve both employers and employees in the process.

That’s the view of one of the largest employer groups, after the Trump administration proposed a major change last week to how the U.S. drug pricing system works, in an effort to bring down the cost of prescription medications for patients. The proposed regulation from Health and Human Services Secretary Alex Azar would eliminate behind-the-scenes discounts among drugmakers, insurers and go-betweens and instead require that the rebates be paid directly to consumers when they buy their medications.

“This is one of the most transformative health reforms we’ve seen in the past few years,” says Mike Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions. “Rebates sound good in [theory], but the reality is they’ve disrupted [the marketplace] and have created a market that is non-transparent and more focused on rebates than value.”

This proposal would increase pricing transparency for pharmaceutical consumers and will help eliminate conflicts of interest, ultimately leading of greater competition based on value from the eye of the employer, employer groups argue.

“The push for more straightforward, simple and streamlined supply-chain pricing and contracting models is reaching a tipping point,” says Brian Marcotte, president and CEO of the National Business Group on Health.

Employers have been calling for change in the drug industry and long argued that drug rebates are an ineffective strategy: 84% say the pharmaceutical supply chain needs to change and 35% believe it needs to be more transparent and that drug manufacturers rebates should be reduced, according to a National Business Group on Health survey.

Three-quarters of large employers do not believe drug manufacturer rebates are an effective tool to drive down pharmaceutical costs, and more than 90% of employers would welcome an alternative to the rebate-driven approach to managing drug costs.

If the rule goes into effect, the transition will be critical for employers, as many of them have three- to five-year contracts with their pharmacy benefit manager, Thompson says.

“Obviously those contracts would quickly become null and void if the rebates were eliminated,” he says. “I suspect there will be some sort of transitional rules that will allow employers and PBMs to transition to the new rules.”

The move also will give employers more power when it comes to drug pricing, he adds. “Ultimately we’re going to have greater transparency at the individual drug level and employers will be able to be much more effective and influencing the practices and drug pricing of PBMs and ultimately the pharmaceutical industry.”

Thompson says that under the proposed rule, employees would get the benefit of the discounts that were previously behind the scenes. “That will be at the expense of the employer, but they’ll have other ways they can balance their financial needs,” he says.

For employers that have fixed copays, there’s no real effect financially, he says, assuming those rebates get translated into the net prices for the pharmacies. While employers in the end will come out even, they just won’t see these big rebate checks; instead they’ll see the actual costs on the front end.

“But for employers who offer percentage coinsurance, today, very few of them would have passed back the value of the rebate in how the employees were getting charged the coinsurance,” he adds. “For those employers, the employees will start getting the benefit of their share of those discounts.”

As PBMs play an important aggregation role for employers, Thompson says, the proposed rule does not spell their demise.

However, the rule will lead to more transparency and greater competition among PBMs, including non-traditional PBMs, he says. “It will help to eliminate what many have perceived as conflicts of interest in how formularies and drug management have been performed in recent years,” Thompson says. “From that perspective, this is critical to the long-term sustainability of this industry.”

Some critics warn the proposed rule could lead to higher premiums for consumers.

“We are concerned that eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries,” says Pharmaceutical Care Management Association President and CEO JC Scott.

“While we are reviewing the proposed rule, we stand ready to work with the administration to achieve our shared goal to reduce high drug costs,” Scott adds. “PBMs are part of the solution to high cost prescription drugs. Drugmakers alone set and raise prices.”

Department of Health and Human Services Secretary Alex Azar said in a statement that eliminating the safe harbors would increase transparency in the black box of the pharmacy supply chain.

“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen,” Azar said. “President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets and deliver savings to patients directly when they walk into the pharmacy.”

Drug rebates negotiated by PBMs are, at present, protected from Stark Law and anti-kickback statute challenges. HHS is calling instead to offer those protections for discounts that are passed on to patients, saying it could especially benefit Medicare Part D patients with high out-of-pocket costs.

PBMs take the savings from negotiated rebates and typically apply it broadly across premiums instead of directly passing each discount on to their members at the counter.

In a statement, the Pharmaceutical Care Management Association CEO JC Scott said that eliminating the safe harbor protections could lead to concerns about access to some drugs. Scott highlighted several studies that indicate PBMs are not to blame for rising drug costs.

“Any proposals to eliminate PBM-negotiated rebates must consider the impact it will have on Medicare beneficiaries’ access to affordable prescription drugs and costs to taxpayers,” Scott said.

In addition to allowing safe harbors for savings directly to consumers, HHS is proposing protections for fixed fee agreements between pharmaceutical companies and PBMs. In this protection, service fees drug companies pay to PBMs for services applicable only to the manufacturer—not a payer—would be covered if they meet certain criteria.

On a call with reporters, a senior official at HHS said that the goal of the rule is to “correct the perverse incentives” in the drug supply chain that can lead to exclusive formularies and higher costs for patients. The official said the rule may be “the single most significant reform ever implemented” in addressing the way drugs are priced and paid for.

“We know that the incentives in the current system lead to higher list prices,” the official said. “Everyone in the supply chain benefits—except for the patient—when list prices go up.”

A senior official at the HHS Office of Inspector General said on the call that while the rule mainly impacts PBM rebates paid to members of federal payers, the rulemaking could have ripple effects in the commercial sector.

The OIG official said the agency is seeking feedback on the potential impacts of the change.

The HHS official said the agency is targeting Jan. 1, 2020 to end the existing safe harbors and to launch the new ones within 60 days of the rule’s finalization. That said, PBMs and drug companies can begin these negotiations “now,” the official said, to bring down prices.

Californians indicated In a survey released Thursday that they want state leaders to put a priority on ensuring that people with mental health conditions can get access to treatment, with 49 percent saying it’s extremely important and 39 percent saying it’s very important.

Survey findings offer a view of what state residents want, the survey authors said, as the new governor takes the reins and a new legislative session begins. Asked to rank what they felt state leaders should make their top priorities, poll respondents put improving public education in the top spot, but following closely behind was making health care more affordable.

While 86 percent of those surveyed considered improving public education very or extremely important, health care affordability ranked highly with 80 percent. Coming in third was making housing more affordable at 75 percent. The findings had an error rate of plus or minus 3 percentage points.

Asked to assess what aspects of health care mattered most to them, survey respondents ranked expanding access to mental health care as most crucial. Next on the list was making sure all Californians have access to health care and third, lowering the cost of health care for Californians.

“About half — 52 percent — of Californians say their community does not have enough mental health providers to serve the needs of local residents, compared to 27 percent who say it does have enough and 21 percent who say they don’t know enough to say,” survey authors said.